Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Sometimes I realize I should just give up with any sort of explanations. I do not know how you do it. You often post the same information again and again and again and a large number of people just cannot seem to comprehend.
I cannot decide if we are seeing just a lot of low IQ or people who have absolutely no financial acumen. Probably some of both.
A lot of stuff I just save , copy and paste it comes up so often
If it were me, Id pay off the house. Its just me, tho. I just finished paying off a 30 year mortgage in 15 years, and the amount of interest I saved was staggering. I wish I had paid it off in 10. But at least its done, thats a huge monthly nut I dont have to pay, and can now invest that money...or spend it.
This decision is not about the wisdom of buying a residence and expecting appreciation. This is about deciding whether a mortgage is a better decision than outright purchase.
As to the mental health aspect, $100K is a significant amount of money to me. I feel much better having that money than not. I can also at anytime decide to pay off the mortgage. If I did so today, I would again be $100K ahead of the game and not have a mortgage. I would much, much rather have a low cost mortgage and keep that money working for me.
Again, there is a difference between the haves and the havenots. Improving one's finances is relatively simple. First, spend less than you make. Second, put the saved money to work for you. Some people just do not seem to understand that investing is an absolute necessity to achieving financial security. Investing means diversification but regardless of the diversification, it also means that there will be setbacks in returns and in the absolute value of the portfolio. Mental health requires some level of ability to function by making rational decisions.
A preference is not necessarily "irrational" simply because it does not absolutely maximize a person's net worth at a given point in time. There are lots of intangible factors. If all you care about is money, you and everyone that knows you will be miserable. What good is all the money in the world if it does not make anyone happy?
Perhaps you personally feel that the difference (which you calculated with the benefit of hindsight) is worth it to you. But why assume that what matters most to you does so for everyone else (or even "should" do so for everyone else)? Are other people not entitled to different personal preferences? Isn't it rather disrespectful to label a mere difference of opinion as "irrational" ?
I get that you think that some of us should "just get over" our debt aversion. But why is this any more compelling than thinking that someone should "just get over" an aversion to living with 5 roommates in order to pad their brokerage account more? Or that anyone should "just get over" their desire for any car other than the smallest, cheapest reliable car possible?
If a person wants to trade money for intangible factors, is there any reason to think that spending on material goods is potentially justified but spending on peace of mind is not? Why the double standard?
Finally, what about the effect of stress on work productivity? Perhaps debt avoidance is not the absolutely return-maximizing strategy, but takes enough stress off someone that they can be more creative and productive at work and increase their earnings. Could this not be a factor as well?
Lets say it sells for the asking price of $365000.
The payoff on the mortgage is $130000.
That leaves me with $235,000.
I am buying a home for $165,000.
Absolutely... a good move.
Shift your accumulated housing equity into a less expensive property...
eliminate the burden of the mortgage...
and put the rest into one of the investment options available.
A preference is not necessarily "irrational" simply because it does not absolutely maximize a person's net worth at a given point in time. ......
If a person wants to trade money for intangible factors, is there any reason to think that spending on material goods is potentially justified but spending on peace of mind is not? ......
Your choice of words does not change the facts. My $330K loan has already netted me over $100K. Over time that will just grow and compound. If I leave the profits reinvested, I except my loan will net me way over a half million over the course of the 30 years. Since I am retired and getting older, I will be spending at least some of that money way before then end of the mortgage.
I have no idea what "intangible factors" you think I have given up. I still have the money that I borrowed. It is not tied up in a house. I can take that money at anytime and pay off the mortgage and again if I did that tomorrow I would be $100K ahead.
Maybe I just don't understand and need to give you ideas more thought. Some how I just have a hard time understanding how acting irrationally and hurting one's finances is for the better. On second thought I guess I am not going to get anywhere trying to understand. For you it seems to come down to feelings without consideration for analysis or thought. Certainly you are free to live your life that way if you want and are willing to suffer the consequences.
Your choice of words does not change the facts. My $330K loan has already netted me over $100K. Over time that will just grow and compound. If I leave the profits reinvested, I except my loan will net me way over a half million over the course of the 30 years. Since I am retired and getting older, I will be spending at least some of that money way before then end of the mortgage.
I have no idea what "intangible factors" you think I have given up. I still have the money that I borrowed. It is not tied up in a house. I can take that money at anytime and pay off the mortgage and again if I did that tomorrow I would be $100K ahead.
Maybe I just don't understand and need to give you ideas more thought. Some how I just have a hard time understanding how acting irrationally and hurting one's finances is for the better. On second thought I guess I am not going to get anywhere trying to understand. For you it seems to come down to feelings without consideration for analysis or thought. Certainly you are free to live your life that way if you want and are willing to suffer the consequences.
Define what you believe rational thought is. I believe it is acting in order to best achieve whatever one's goals or preferences are.
Rational thought....the use of reason, logic, analysis and facts.
Irrational thought....the use of impulse, feelings, wishful thinking.
A preference is an alternative we have chosen. Many of us try to make choices based on rational thought.
Some people try to make rational decisions. Others make decisions that are irrational which could mean based on impulses and/or feelings. Some people make decisions based on faith or what others have told them or what they see as a norm in society.
It is rarely useful to attempt a rational discussion with some one determined to follow irrational decision making. Sadly I seem to be doing that now.
Rational thought....the use of reason, logic, analysis and facts.
Irrational thought....the use of impulse, feelings, wishful thinking.
A preference is an alternative we have chosen. Many of us try to make choices based on rational thought.
Some people try to make rational decisions. Others make decisions that are irrational which could mean based on impulses and/or feelings. Some people make decisions based on faith or what others have told them or what they see as a norm in society.
It is rarely useful to attempt a rational discussion with some one determined to follow irrational decision making. Sadly I seem to be doing that now.
I don't think that is a sufficient explanation. Many of us strive to make rational informed decisions. We can be wrong because of faulty analysis or missing information. If we stick with our poor conclusions that would mean believing our own bull crap.
Others act on feelings or impulse or beliefs they adopted with no attempt at analysis faulty or otherwise.
Your choice of words does not change the facts. My $330K loan has already netted me over $100K. Over time that will just grow and compound. If I leave the profits reinvested, I except my loan will net me way over a half million over the course of the 30 years. Since I am retired and getting older, I will be spending at least some of that money way before then end of the mortgage.
I have no idea what "intangible factors" you think I have given up. I still have the money that I borrowed. It is not tied up in a house. I can take that money at anytime and pay off the mortgage and again if I did that tomorrow I would be $100K ahead.
Maybe I just don't understand and need to give you ideas more thought. Some how I just have a hard time understanding how acting irrationally and hurting one's finances is for the better. On second thought I guess I am not going to get anywhere trying to understand. For you it seems to come down to feelings without consideration for analysis or thought. Certainly you are free to live your life that way if you want and are willing to suffer the consequences.
You are making several assumptions. First, you assume that a person has the know-how on investments to outperform their mortgage rate. Second, you assume that they do not hit an unlucky period ( which would generally correspond to investing at the top of the market). Third, you assume that the emotional cost of depending on volatile assets to offset the debt is negligible for the individual in question.
It is patently absurd to assume that anyone who does not believe these to be true is being irrational. You defined rationality as the use of logic, reason and facts. It is a fact that many people , even most, underperform even the s&p 500 with their investments. You should not simply assume that because you personally find a strategy useful in one given case that it is the only rational course of action.
For that matter, truly rational people do not attempt to make universal statements about financial strategy on the basis of a single data point. Which it seems to me is exactly what you are doing.
Re-run your experiment with 100 average people, spread out among market cycle phases, then you will have actual data. Or use firecalc and find that even under ideal conditions, there is a 4% chance of the leverage strategy losing. Strictly speaking, there is no objective, non-question-begging argument that allows one to uniquely define a rational risk tolerance level , that anyone has found. If you can develop such an analysis, I will nominate you for a Nobel Prize in math !
As a final note, there is a distinction between irrational and arational ( similar to the distinction between immoral and amoral). An example might be the act of falling in love. It is not rational or irrational. It is arational, meaning that it is outside the scope of a rational analysis. The same thing can be said about a consumption choice - does one spend their $9.00 on a cheese pizza or a pepperoni pizza? Or does one save that money so that tomorrow they may be able to buy their child a better birthday gift?
It may be far from obvious, but the kind of decision you are talking about is also not strictly a rational one. Suppose that Joe decides to buy his house in cash and effectively loses $100k on opportunity cost, but sleeps soundly every night knowing that even a sour economy will not cause him to lose his house or sell stocks at a loss. Jane, by contrast, employs your strategy and eventually spends her extra $100k on travel and cruises and lifestyle. Is Joe or Jane the more rational one? Well, this depends on whether Joe derives more benefit from his peace of mind than Jane does from her lifestyle. If you simply assume that Joe’s desire to have peace of mind is irrational while Jane’s desire for travel is rational, you are begging the question.
I get that you personally don’t have values anything like Joe’s. But that is not the issue at hand. The question is why we should believe that Jane is *objectively* the more rational one.
Last edited by ncole1; 05-24-2019 at 07:17 PM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
